Tax Justice Network

Wednesday, August 31, 2011

That UK criminal clampdown in full

“Those who make the wrong decision, who engage in criminality, must be identified, arrested and punished, and we will make sure that happens”.11 August 2011. Home Secretary Theresa May outlines her no-nonsense approach to criminal justice.

“The United Kingdom further states that the criminal prosecution of bank employees due to participation in tax offences is highly unlikely”.23 August 2011. Clause in UK-Swiss tax deal agreed by Chancellor George Osborne, proving there’s one set of laws for Britain’s teenage miscreants and another for its bankers.

It also contains useful articles on tax avoidance schemes at Cadbury's and at Pearson's, as well as providing a useful pointer to one important reason why the UK-Swiss deal will not work. On UK shelves now. One snippet in particular is interesting:

"Among the more active purveyors of Swiss bank accounts is HSBC Private Bank in Geneva. Last year HMRC [UK Revenue and Customs] was sold details of its secret accounts and more recently two businessmen were convicted in the US of hiding $50m there. The UK-Swiss deal gets the banks off the hook for this kind of thing, too, committing HMRC not to use any more data from whistleblowers or to take on the bankers themselves. Whether the man who jetted into Zurich six times up to March (and doubtless many times since) to negotiate the deal personally, HMRC boss Dave Hartnett, had the power to tie Knacker’s hands at the behest of the Swiss is something that might yet be challenged."

(For those who aren't familiar with Private Eye, Knacker, or Inspector Knacker of the {Scotland} Yard, is a term that refers to the British Police.) We look forward to a challenge!

Links Aug 31

India: No tax amnesty for money stashed away in Swiss banks The Hindu Business LineAug 25 - "The Government has ruled out tax amnesty for money deposited by Indians in Swiss banks." Commenting on theSwiss-German deal and the Swiss-UK deal, "senior Central Board of Direct Taxes (CBDT) official told Business Line, 'India will not go for such a treaty. Rather, we would prefer criminal investigation and action thereof.'” Hat tip Offshore Watch.

Swiss tax deal prompts switch to Liechtenstein accountancyAug 31 - Commentary on jurisdiction shopping: "Accountants are predicting that wealthy Britons who hold funds in Swiss bank accounts may opt to switch their funds to Liechtenstein following the announcement of the tax agreement between Switzerland and the UK, in order to take advantage of lower tax rates." The point is, hidden funds move around secrecy jurisdictions, which is why the solution is international cooperation on automatic information exchange, on a multilateral basis.

Major money-laundering scandal hits Geneva swissinfo Aug 29 - On a bribery and money-laundering case with ramifications in three continents, involving millions of dollars laundered through a Swiss private banking institution.

See also:
Pictet Bank Sued by Saudi Company, Accused of Aiding Bribery Scheme BloombergAug 26 - “Pictet’s part in the conspiracy was clear -- it was charged by the corrupted employees with responsibility of concealing their receipt of the bribe money”.

Governments concerned that some corporations unfairly claim losses to avoid taxes OECDAug 30 - The OECD releases a new study on agressive tax planning. "Due to the recent financial and economic crisis, global corporate losses have increased significantly ...Though most of these claims are justified, some corporations find loop-holes and use ‘aggressive tax planning’ to avoid taxes in ways that are not within the spirit of the law."

I am not a masochist but the rich must pay more Financial TimesAug 29 - "If the wealthy can endure higher taxes without complaint, the less privileged may feel able to bear the pain that sharp-edged reforms will entail. I never thought I would find myself saying this, but it is time to increase my share of taxes." See also our blog on Wealthy people acting for tax justice.

Wealthy people acting for tax justice

The UK newspaper The Guardian has published this article, Tax us more, say wealthy Europeans, which reports how, after Warren Buffett put out a call to stop coddling the super-rich, Liliane Bettencourt, France's richest woman, "signed a letter along with 15 other billionaires begging to make a special contribution to the treasury to help drag France out of the financial crisis". Luca di Montezemolo, the chairman of Ferrari, is joining the call to pay a fairer share of tax. Spain is considering the reintroduction of a wealth tax.

Two years ago, a group of 50 wealthy Germans called on Angela Merkel's government to rethink its taxation policies. Currently the richest Germans are taxed a maximum of 42%. The previous chancellor, Gerhard Schröder, lowered the top tax rate from the 53% ceiling set by his predecessor, Helmut Kohl.

The German group, Vermögende für eine Vermögensabgabe (The Wealthy for a Capital Levy) is the latest manifestation of a feeling among some well-off individuals that the spare cash in their bank accounts might be able to ease, if not solve, the financial crises threatening to cripple their countries.

"None of us are in Buffett's or Bettencourt's league," said the founder, Dieter Lehmkuhl, a retired doctor with assets of €1.5m (£1.3m). "We're a broad church – teachers, doctors, entrepreneurs. Most of our wealth is inherited. But we have more money than we need."

Lehmkuhl explains:

"I would say to Merkel that the answer to sorting out Germany's financial problems, our public debt, is not to bring in cuts, which will disproportionately hit poorer people, but to tax the wealthy more"

"Something needs to be done to stop the gap between rich and poor getting even bigger."

However, all is not rosy on this front. For example:

Last week in France Nicolas Sarkozy proposed a similar idea: a temporary tax on the very rich. This would arrive in the form of an "exceptional contribution" of 3% on taxable earnings for those earning above €500,000. It will probably only last until 2013.

The initiative has been attacked as an empty stunt before it has even kicked in – even by some in his own party. The left deemed it a smokescreen to hide the fact that Sarkozy has given away billions of euros in tax breaks to the rich while this new measure will yield only €200m. Chantal Brunel, an MP for Sarkozy's own ruling rightwing UMP party, said that there must be higher permanent tax levels for "big fortunes" because "the rich must participate more".

However, as said, we are encouraged that some rich people genuinely want to do the right thing. Since proponents of the secrecy system for tax "minimisation" purposes tend to be wealthy and internationally connected, we find it heartening that there are those with wealth who are forming a movement, around the globe, to act for tax fairness.

So far, we're hearing calls coming from France, Germany, Italy, Spain and the USA - we will be glad to hear news of more.

Press Statement from Tax Justice Network-Africa: National Conference on Tax in Kenya

The East Africa Tax and Governance Network (EATGN) was created out of a process that began in November 2009 in Naivasha, Kenya to ‘increase stakeholder engagement and public debate on tax and governance in East Africa.’ The main goal of the Network is to promote new and sustained multi-stakeholder dialogue and media debate on governance and taxation issues in Kenya and across East Africa.

The EATGN organized its inaugural national conference on tax justice in Kenya on Tuesday the 23rd of August 2011 at the Kenyatta International Conference Centre. Officially opened by Dr. Geoffrey Mwau (Economic Secretary at the Treasury), the event saw over 100 participants representing civil society organizations, media, and research institutions from all over Kenya. Representatives of international organizations such as the International Monetary Fund and diplomatic missions such as the Embassy of Finland in Kenya were also in attendance.

Participants at the event were made aware of the rationale and administration of taxation, together with the role of each citizen in both contributing his/her fair share of taxes and holding their local and national governments to account for the manner in which collected revenues are spent .

Figures presented at the conference demonstrated that the whole world, Africa and the East Africa region lose billions of dollars as a result of tax leakages and illicit financial flows. According to a report from the Global Financial Integrity dubbed Illicit Financial Flows from Africa: Hidden Resource for Development, illicit capital from Africa between 1970 and 2008 amounted to $854.1 billion. Of this, $38.3 billion came from the Great Lakes Region which includes Burundi, the Democratic Republic of Congo, Rwanda, Tanzania, Kenya, and Uganda. Of this amount, Kenya has lost $7.3 billion. During the same event, Dr. Mwau confirmed that Kenya is losing about 100 billion shillings per year through tax incentives granted to foreign investors.

The EATGN believes that the current challenges with regard to tax policy and administration need to be addressed in order to increase domestic revenue for African countries—revenues that can then be used to finance properly designed development projects. These challenges include removing loopholes within tax laws that enable aggressive tax avoidance by wealthy individuals and multinationals, increasing the administrative capacity of revenue authorities to better collect tax in a transparent and fair manner, broadening the income tax base especially of the informal sector, and improving taxpayer education services.

In this context, citizens and civil society organizations have a role to play in ensuring revenue collected by their governments is not misused by unscrupulous individuals through closely monitoring public expenditure in delivery of services and management of devolved funds. The conference agreed on continued multi-sector dialogue to facilitate provision of information to enhance the quality and quantity of media reporting on tax and governance and create linkages to address revenue losses from the East Africa region.

You can also see the press release from Tax Justice Network-Africa and partner organisations here.

For more information, see http://www.taxjusticeafrica.net/ or send an inquiry to infoafrica@taxjustice.net

Monday, August 29, 2011

Links Aug 29

Analysis: City gears up to kill new finance tax Bureau of Investigative JournalismAug 26 - Nick Mathiason observes: "Since the crash there has been little meaningful reform on bankers’ pay, tax abuse and transparency in markets, despite wide public desire that the City should be made to pay for some of the mess western economies are now in. And while many economies hang in the balance, profits in many financial sectors are back up to pre-crash levels and bankers’ pay is back in the stratosphere. But the City lobby is powerful ... Merkel and Sarkozy are going to need great powers of persuasion to force the EU financial tax agenda beyond the Eurozone and into London’s markets.

Tax Havens and Bank Secrecy: The "death" of the London G20 Les Echos (In French)
Aug 26 - Observing how the Swiss-German deal (thus also the Swiss-UK deal) is turning its back on the commitments of the G20 in April 2009. Only asystem of automatic exchangeof bank informationand beneficial ownership cansimultaneouslyensure bettertax revenuesand restoregreater tax fairness.The agreementturns its back onthese two objectivesthat remainmore than everessential.Itonly remains tohope thatother statesdo not followthis path...

Dismantle Dutch fiscal shelters SOMOAug 22 - "In a press release from 9 August, the Dutch Central Bank (De Nederlandsche Bank, DNB) announced with pride that the Netherlands topped the IMF’s world ranking for foreign direct investment ... This should not inspire pride but should provoke critical questions on the part of the DNB, particularly in times of financial instability. ... Countries like the Netherlands, Switzerland, the Cayman Islands, Ireland and Luxemburg always score within the top ten in areas of largest incoming and outgoing portfolio investments and interbank loans." See also our blog on the issue here by Koos de Bruijn.

Indian Ruling Undermines Mauritian DTA Tax-NewsAug 15 - A welcome ruling from the Mumbai High Court, involving the US multinational AT&T, has cast into doubt the use of structures in Mauritius to mitigate tax paid in India.
JPMorgan to Pay $88.3 Million for Sanctions Violations New York TimesAug 25 - On JP Morgan Chase being caught out for turning a blind eye to sanctions-breaking transactions. "Treasury officials called the bank’s actions 'egregious' and said that JPMorgan’s 'managers and supervisors acted with knowledge of the conduct constituting the apparent violations and recklessly failed to exercise a minimal degree of caution or care.'” See here and here for more examples of 'egregious' behaviour by other players in the international banking field.
Should Banks Profit From Dictators’ Money? Transparency InternationalAug 26 - On the handling of looted assets: "Why should they stay with the banks who have failed in their due diligence, where governments cannot use it and where they will continue to accrue interest for the banks? They should rather be kept in escrow accounts run by international development banks, so that they can help the governments trying to help their countries recover from years of corruption, graft and misappropriation. Transparency International has called on the Group of 20 leading economies to make this happen."

A Brief History of the Foreign Corrupt Practices Act Task Force on Financial Integrity and Economic DevelopmentAug 25 - "As many of our readers know, the Foreign Corrupt Practices Act (FCPA) is under assault by the Chamber of Commerce and some members of Congress. This valuable statute prohibits domestic companies from bribing foreign officials for the purpose of obtaining or retaining business opportunities abroad and has a purposefully broad reach, extending to any company operating globally with securities registered in the U.S." See the video for an excellent history of the FCPA and the international movement to curb bribery.

Rich Man Whining Huffington PostAug 24 - Prof Edward D. Kleinbard comments on an article by Harvey Golub, the former CEO of American Express (and briefly the Chairman of AIG): "Golub directed his umbrage at Warren Buffett and President Obama, for suggesting that the rich in general, and by implication Mr. Golub in particular, should pay somewhat higher income tax rates than they do now ... Golub's article accurately reflects the ethos of a large swath of the privileged classes."

Corporations Are People... Who Should Pay More Taxes Citizens for Tax JusticeAug 25 - "Of course, it’s true that corporate earnings eventually go to people and that taxes on corporate earnings are borne by people. Those people are primarily the shareholders ... The serious problem is that the shareholders who own these corporations are not paying enough, thanks to the loopholes that allow corporations like GE, Boeing, Verizon and others to avoid taxation entirely."

Data on Top 20 Corporations Using Repatriation Amnesty Calls into Question Claims of New Democrat Network Citizens for Tax JusticeAug 26 - "As the CRS report mentioned above concluded, the profits repatriated under the 2004 amnesty were used to fund increased stock dividends and stock buybacks. They did not lead to additional job creation or investment in the United States. Rewarding corporations that shift profits to offshore tax havens is a terrible policy. It was tried before, it failed, and it should not be repeated.

Money laundering is surging EL PAÍS(In Spanish)
Aug 15 - On the rise in money laundering, often using tax havens, that siphons billions of Euros from Spain and constitutes a large part of political corruption monies.
Of course we need tax havens Tax Research UKAug 29 - Richard Murphy observes: "There has been an interesting outbreak of pragmatism that endorses tax haven behaviour ... all of it the result of George Osborne’s [UK Chancellor of the Exchequer] Swiss tax deal. So let me be clear, of course we need tax havens. Without them we couldn’t undertake mass tax evasion, hide multinational company profits from tax, launder drug money, launch attacks on the tax systems of democracies..." and more, including "provide asymetric information to markets that increase risk and threaten global financial collapse".

Thursday, August 25, 2011

TJN on the disgraceful UK-Swiss deal

TJN was, for family and work and time reasons, unable to blog the UK-Swiss deal on secrecy yesterday, although we have blogged this issue in the past, via a German deal which is (apart from tax rates) extremely similar to the UK's, and whose criticisms equally apply here). Although we didn't write about it, various TJN officials and related parties spoke about it in a wide range of media, largely in the UK, explaining why this deal is rotten to the core.

TJN's position is:

It sabotages European and other efforts to fight together for financial transparency. This has implications for countries, rich and poor, around the world.

It lets proven tax-evading criminals off the hook.

In colluding with criminality and puts wealthy tax evaders in a specially privileged position, above ordinary mortals. One set of rules for them, another for the rest of us. (See the UK uncut post linked to, below.)

In creating lawlessness for the elites, while creating repression for the poor and weak, it not only distorts society, but also distorts and corrupts markets.

At a time of national soul-searching, following the UK riots, and worries about a "moral collapse" in every corner of British society, to grant impunity and protection and secrecy to the wealthiest members of society sends an appalling message.

From the information that's available, it seems that although the deal will allow the UK to receive some (and we stress some) of the tax due to it, there is a gigantic loophole as regards inheritance taxes. From what we know so far, though not all details have been provided yet, no inheritance taxes will be levied. Why not?

What are the 'special rules' for non-domiciled taxpayers? Non-doms already escape UK tax on their non-UK income. Does this mean they get a free and officially endorsed blanket of secrecy thrown over their Swiss affairs too?

It contemptuously dismisses whistleblowers, an essential check on criminality and corruption in any society.

It creates a ring-fenced fortress of secrecy for criminals to flourish in. Although there are supposedly safeguards to allow information-sharing in the case of certain classes of crimes, these safeguards are extremely weak, and are themselves subject to all sorts of caps and restrictions. If Switzerland is serious about tackling crime, why place severe caps on this?

Many other vital details are still secret. How will the Swiss calculate marginal tax rates without having full disclosure of a taxpayer's total tax affairs ? Is the UK therefore handing tax sovereignty to Switzerland?

The UK should have followed the American example. They discovered that Swiss banks had been helping American commit tax crimes, and they went after them. During their probes, they put pressure on individuals caught out, obtained more information, and started bringing in more Swiss banks into the noose. They are in a far, far stronger position now to extract concessions out of the Swiss than the UK ever was. And the UK has been handed information on a plate about this. As Reuters notes: "British authorities are investigating hundreds of HSBC (HSBA.L) customers suspected of tax evasion after it obtained details of around 7,000 Swiss accounts at the bank from another tax authority, Why has the UK chosen to suddenly let all these people off the hook? The deal explicitly prevents the UK from acting on this data now.

The Swiss government and Swiss banks have a long and shameful record in the past of outright lying to foreign tax authorities about their affairs, and breaking assurances. If you think lying is too strong a word, then read Tom Bower's book Blood Money, about the efforts to hunt for justice for the victims of the Nazis. Your mind will be changed. The Swiss have a record that shows they cannot be trusted. And yet the UK has decided to take an awful lot on trust.

In summary, this is a shabby, unprincipled and dangerous deal. It is a victory for Switzerland over the UK. If other countries (as well as Germany) are considering this, or if the UK is considering extending this corruption to other tax havens, then we need to fight it with everything we've got.

On the other hand, Patrick Odier, Chair of the Swiss Banking Association, is delighted: "overall, my assessment of the tax agreements is positive," he told Swissinfo.ch. "They mark important milestones for the Swiss financial centre. As a banker, I am especially grateful that clients have been offered a fair solution for regularising their efforts." You bet he's grateful, and so are his clients. What a shocking disgrace, especially coming so soon after the punitive treatment doled out to the looters in London and other cities who have had the full weight of Her Majesty's constabulary brought to bear in catching and charging them with crimes involving far, far less cost to British society.

UK-Swiss tax deal: timid and anonymous - Financial Times"As long as specific names and account details remain secret, determined tax evaders will have an edge over governments. So why have Germany and the UK been willing to settle for less than the standard set in this area in the European Savings Tax Directive, and for fewer concessions than the US received in 2009?"

David Prosser: Britain's tawdry tax deal with Switzerland is a charter for tax evaders - The Independent.How pleased should we be about the latest deal? About as pleased as we would be if someone had robbed a British bank, fled to Switzerland and then got away scot-free apart from the inconvenience of the local authorities handing back some of the proceeds.

A series from Tax Research:

Let's not get personal - this is a matter of right or wrongThis was a ‘Marmite’ issue – you’re either for or against it. You are either for or against letting tax criminals off; endorsing banking secrecy so that criminality may flourish; giving anonymity to who coldly plan and execute their crimes in organised fashion; encouraging an unlevel playing field for business so that the cheats get an unfair competitive advantage; H M Revenue & Customs not upholding the law; granting immunity to those banks and bankers who organised the handling of stolen property. It's about ethics.

Labour shadow minister condemns Swiss tax deal"The Government should ensure that all those who have broken the law face the full penalty. There is a significant risk that some who have taken part in criminal tax evasion will escape by paying less than if prosecuted – the Government should guarantee this will not happen."

Cameron and Osborne did the Swiss tax deal to support tax evasion - there's no other explanationThe EU Savings Tax Directive, currently being beefed up, would have ensured we’d have got all the information we needed to demand all the tax due by those who have been criminally evading their tax bills. It would have applied to Jersey, Guernsey, the Isle of Man, Cayman and all other British tax havens that comprise the branch offices of the City of London tax haven. And it would also have extended information exchange to companies and trusts – which would have shattered the tax evasion industries in these British tax havens.I think the UK- Swiss tax deal has been deliberately engineered to scupper that.

In the words of TJN's James Henry, author of the book Blood Bankers, this is a bargain with the devil.

Imagine the horror of what would happen if this thinking spread. Tax haven secrecy would be entrenched. Criminality, impunity, corruption and a breakdown in trust would become entrenched.

This is an issue for all citizens of the world. Other countries have considered following the UK-German lead. And the UK may be considering extending this Swiss model to other countries. Take a look at this. It's appalling.

It is not too late to stop this in the UK. Let's start to mobilise to get this stopped.

Links Aug 25

Swiss-British bank tax deal ruffles feathers swissinfoAug 25 - A deal to end a tax evasion row between Switzerland and Britain has been hailed as a victory for Swiss banks but a blow for the global crusade against banking secrecy. Note the comments by John Christensen, TJN Director. See also recent TJN blog posts such as here, and numerous posts by Richard Murphy on Tax Research UK.

Shell company fraud: is the UK Serious Fraud Office doing its job? Treasure IslandsAug 24 - Nick Shaxson writes, on a story we also linked recently - "Reuters has run another excellent article about shell companies and tax havens, as part of its groundbreaking Shell Games series. It’s an interesting and unusual, if rather involved, tale about how investors got fleeced in a very weird deal ..." Also, on the story seeming to fit into "a UK pattern of turning a blind eye to murky business, in the hope of attracting as much of it as possible (often via tax havens as conduits)." Interesting to consider Nick's comments alongside those of Richard Murphy here.

Poor Tax Education is a Bane to Good Governance in Africa Ghana News AgencyAug 23 - Prince Rasaq ‘Kunle Quadri, President of West African Union of Tax Institutes (WAUTI), said " 'if the citizenry was conscious of and became interested in developmental agenda of government then they would be more inclined to contribute their quota through taxes.' "

Kenya losing Sh100 billion annually on tax exemptions The StandardAug 23 - "Kenya is losing over Sh100 billion [approx US$100 billion] annually from a number of tax exemptions, most of which are 'unnecessary', while others fuel corruption." Speaking at a forum organised by the East Africa Tax and Governance Network, "Economic Secretary Geoffery Mwau said on Tuesday the Treasury would abolish tax exemptions deemed unnecessary and those being abused by unscrupulous traders."

America is GE’s tax haven ReutersAug 23 - David Cay Johnston writes on the tax dodging shenanigans of General Electric, and notes "Last year GE spent $39.3 million lobbying Congress, roughly $73,000 for every senator and representative. That’s four times what it spent back when its American tax rates, and its share of profits taken in America, were both much higher."

Pirates of the Tax Havens YouTubeAug 22 - Funny but very much to-the-point activism in Newcastle in the UK - helping the person in the street to understand the dastardly deeds of the corporate tax dodgers and their government cronies.

Australia: Myer tax hunt focus on Gray Melbourne AgeAug 24 - "Companies in the tax havens of Luxembourg and the Cayman Islands have been hit with a tax bill of more than $738 million as the Australian Tax Office sharpens its focus on the private equity firm behind the 2009 float of the retailer Myer" - a story of dealings via a corporate chain that also included the Netherlands. The Australian Tax Office is scrutinising the roles of directors in offshore holding companies that private equity firms use when drawing funds out of Australia.

The Lap of Luxembourgery Foreign PolicySep-Oct 2011 issue - "In the dark heart of Europe lies a nation rotten to the core. Renowned as a secret banking haven where North Korean leader Kim Jong Il allegedly squirreled away billions of dollars, its economy is tied to the whims of capricious global money markets. The country's per capita external debt is 84 times that of the debt-ridden United States (some $3.76 million for each man, woman, and child). Democracy is a joke ..."

Foreigners deposit less money in Swiss banks The LocalAug 23 - "Deposits in Swiss banks by foreign private clients have dropped by 73 billion francs ($92.5) over the course of the last year, according to recent statistics from the Swiss National Bank (SNB) ... An explanation for the dip can likely be found in the relaxation of banking secrecy, as well as Switzerland’s moves to distance itself from money laundering and untaxed funds." But where is the money going - could some be moving to other country offices of Swiss banks?

Wednesday, August 24, 2011

Capitalism without capital - exploring the biggest bankruptcy in Canadian history

The following presentation was given by Tony Crawford at TJN's annual research workshop at Essex University this summer. The presentation reviews the extraordinarily complex tax sheltered investment products that contributed to the largest (CA$32 billion) bankruptcy in Canadian history. Tony is a British / Canadian advocate for taxpayer protection through a ‘Responsible Lending Act’.

Tuesday, August 23, 2011

Dutch National Bank lists the Netherlands with tax havens

A guest blog by Koos de Bruijn, member of the global Board of TJN.

Interesting news from an unexpected source. Two weeks ago the National Bank of the Netherlands (De Nederlandsche Bank (DNB))announced that the Netherlands is world leader when it comes to the size of inbound and outbound direct investment. According to DNB, the Netherlands takes about 18% of the global total accounted Foreign Direct Investment (FDI) with $ U.S. 3.7 trillion. DNB notes quite correctly that this originates in large part from the favorable tax regime in the Netherlands. It is significant that DNB compares the Netherlands with tax havens like Luxembourg and Switzerland.

As is commonly known in tax justice circles, these countries are characterized by secrecy and/or very low tax rates. Netherlands on the other hand is not very secretive (as TJN's Financial Secrecy Index shows) and is not known to have very low tax rates. While pointing to that fact the government is very keen to stress it is not a tax haven, The Netherlands is well known for its network of tax treaties to avoid double taxation. When it comes to real economic activity, these treaties are fine. However, as the DNB also indicates, the inward and outward investment is dominated by Special Financial Institutions (SFIs). These are, in the words of the DNB, companies that - because of the favorable (tax) investment climate in the Netherlands - act as financial turntables for companies with a foreign parent. In plain language: these are conduit companies, including many mailbox-companies. That these companies are facilitated, makes the Netherlands a Treaty Haven.

In fact, most of the Dutch investment portfolio mentioned before, are a collection of conduit foreign investment.

State Secretary of Finance Mr. Weekers is committed to extending the treaty network with developing countries. One of his arguments is that this ensures that investment in developing countries becomes more atractive. But there are question marks in the room. There is no evidence that tax treaties lead to an increase in total FDI in a country. A tax treaty with the Netherlands will lead to a shift of direct investment from other countries to investments with a conduit through treaty paradise the Netherlands. And based on that same tax treaty, the partner country cannot levy withholding tax, which otherwise could be lifted.

In other words, a tax treaty with the Netherlands doesn’t lead to more investment, but rather to other investment routes.

Both western governments and MNC’s are eager to tell us that developing countries need domestic resource mobilisation. They are very right on that.

But where governments (including the Dutch government) invest in capacity building in developing countries on the one hand, this is offset with the loss of tax revenue created by a tax treaty with the Netherlands.

As blogged earlier, a proposal in the Dutch parliament for future new treaties to be investigated on the consequences for developing countries before negotiations start, didn’t make it. Now it is up to the Senate to correct this omission and changethe new policyon tax treaties with developing countries.

Links Aug 23

Ex-UBS Client Must Give Tax Records to Grand Jury, U.S. Court Rules BloombergAug 23 - A former UBS client can’t assert his constitutional right against self-incrimination to avoid turning over his bank records to a U.S. grand jury, a federal appeals court ruled in a victory for prosecutors in their crackdown on offshore tax evasion.

Swiss President Says U.S. Approach in Tax Probe ‘Unacceptable’ BloombergAug 22 - Swiss President tries to keep a grip on bank secrecy as the U.S. Internal Revenue Service and the Justice Department have stepped up enforcement to combat offshore tax evasion. See recent blog on Swiss secrecy dealing her.

Please tax us, French super-rich tell government ReutersAug 23 - "Some of France's richest people ... urged the government to tax them more to help solve the country's financial problems. In a petition published on the website of weekly magazine Le Nouvel Observateur on Tuesday, 16 company executives, business leaders and super-rich individuals called for the creation of a "special contribution" that would target wealth without forcing the rich to quit France for overseas tax havens." We would argue that none of these rich people is likely to be "forced" towards a tax haven.

For Cuba's new entrepreneurs, the tax man cometh Associated PressAug 22 - " ' The payment of taxes constitutes a way of contributing to society, and that is a concept that we have to recover,' said Vladimir Regueiro, [

vice chairman of Cuba's tax agency]. 'For many years we have been far from that idea and now we are reviving it.' "

Corporations pushing for job-creation tax breaks shield U.S.-vs.-abroad hiring data Washington Post with BloombergAug 23 - "Some of the country’s best-known multi­national corporations closely guard a number they don’t want anyone to know: the breakdown between their jobs here and abroad...Some of the same companies that do not report their jobs breakdown, including Apple and Pfizer, are pushing lawmakers to cut their tax bills in the name of job creation in the United States."

See also:Corporations Seeking U.S. Tax Breaks Refuse to Reveal Critical U.S. Jobs Data AFL-CIO BlogAug 22 - "U.S. taxpayers and workers have been burned once by the tax repatriation scheme. Let’s not let it happen again."
U.S. : GOP lawmaker for closing tax loopholes favoring 'ultra-wealthy' The HillAug 18 - "Republicans have been near universal in their criticism of Warren Buffett’s New York Timeseditorial last week that encouraged lawmakers to close tax loopholes for the mega-rich, a theme that the president and congressional Democrats have been promoting as the supercommittee budget talks approach. But at least one GOP lawmaker might not be toeing the party line."
See also:
American taxes must reconcile equity and austerity Financial TimesAug 18 - "The real question is why it makes news when someone calls for a return to the status quo, from an experiment in regressive taxation that is depriving the government of resources it needs while further fuelling income inequality. The response shows just how fraught the coming period of reconciling forced austerity with equity is going to be."

We've been warned: the system is ready to blow GuardianAug 18 - "Finally, there has been a big change in the way that the spoils of economic success have been divvied up. Back when Nixon was berating the speculators attacking the dollar peg, there was an implicit social contract under which the individual was guaranteed a job and a decent wage that rose as the economy grew. The fruits of growth were shared with employers, and taxes were recycled into schools, health care and pensions. In return, individuals obeyed the law and encouraged their children to do the same. The assumption was that each generation would have a better life than the last. This implicit social contract has broken down. Growth is less rapid than it was 40 years ago, and the gains have disproportionately gone to companies and the very rich."
The obvious point here is that the growth of tax havens has played a corrosive role in breaking down the social contract.
U.S. : Tax Break for Clergy Questioned Wall Street JournalAug 23 - "As Congress scrutinizes every nook and cranny of the budget for possible revenue, a surprising court decision is allowing clergy members to buy or live in multiple homes tax-free."

Friday, August 19, 2011

Links Aug 19

The World of Dirty Money Pambazuka NewsJul 27 - Part 1 of a four-part series of articles on the flow of 'dirty money', written by Charles Abugre, regional director for Africa, United Nations Millennium Campaign. "Charles Abugre introduces ‘the web of secrecy, collusions and the players that drive and sustain the world of illicit money flows’"

Fighting Illicit Capital Flight Pambazuka NewsPart 4: See the commentary on offshore secrecy jurisdictions, tax havens, and the secrecy services industry.
Africa looking to set up tax havens BusinessReportAug 18 - "As several African governments examine the possibility of setting up their own 'offshore' financial centres, the trade name for tax havens, campaigners are calling for transparency and fair tax regimes. 'We need pan-African action,' says Alvin Mosioma, coordinator of the Tax Justice Network Africa."
Special Report: The bonds that turned to dust ReutersAug15 - An article in the Reuters series exploring the extent and impact of corporate secrecy in the United States and beyond. "What emerges is a cautionary tale from the wilds of offshore finance, a lesson to investors about how easy it is to be drawn into a global maze of paper companies with little substance."

Indian anti-corruption campaigner Anna Hazare leaves jail to begin public hunger strike GuardianAug 19 - "Nearly 2,000 men, women and schoolchildren gathered outside Tihar jail on Friday morning to catch a glimpse of the 73-year-old activist who has used the tactics of Mahatma Gandhi in his fight to force the government to adopt his proposals for an anti-corruption law."

It's time for Northern Ireland to get real on corporation tax Tax Research UKAug 19 - "The Belfast Telegraph featured an article yesterday where a KPMG partner in Belfast argued Ireland will never give up its low tax rate whatever Merkel and Sarkozy say and that Northern Ireland’s tax rate must be cut as soon as possible. KPMG are heavily invested in the plan to make Northern Ireland a tax haven so I am not surprised by the comments. They are, of course, amongst the very few who would gain from this plan which would be massively onerous for the ordinary people of Northern Ireland."

Warren Buffett Is Right, the Wall Street Journal Is Wrong Citizens for Tax JusticeAug 17 - Warren Buffett, the billionaire investor and CEO of Berkshire Hathaway, called for higher taxes for millionaires in a widely-noted op-ed this week (blogged here). The Wall Street Journal reacted with a variety of misleading counter-arguments. Read the conclusions of our friends at CTJ.

The Truth About the Panama Trade Deal The Economic PopulistAug 18 - More on the story we've blogged previously of the U.S. and it's dealings with tax haven Panama.

Madoff trustee demands $2 billion from UBS swissinfoAug 18 - "The trustee seeking money for victims of Bernard Madoff’s fraud has filed an amended $2 billion (SFr1.59 billion) lawsuit, adding new allegations against UBS.Irving Picard on Wednesday accused the Swiss bank of misleading regulators in the United States and Luxembourg about its ties to Madoff, while helping feeder funds funnel their clients’ money into his Ponzi scheme."

It's goodbye Switzerland as the profits from tax evasion disappear Tax Research UKAug 17 - Richard Murphy comments on a report in the Wall Street Journal stating that ABN Amro, the Netherlands’ third biggest bank, will sell its private banking operations in Switzerland to local operator Union Bancaire Privee.

What is a tax haven? Le Monde (In French)Aug 18 - This article provides an overview explanation of tax havens, following reporting on France standing up to Swiss dodging as we blogged earlier.

Jeffrey Sachs on inequality, tax and where globalisation went so horribly wrong

Jeffrey Sachs is back in the Financial Times with a fine article about the failed economic leadership of western governments, and tax havens feature prominently in his analysis.

"Tax havens", he notes, "have proliferated even as the politicians have occasionally railed against them" we like the twist to the politician's collective tails implied by the word 'occasionally'. And he continues: "In the end the poor are doubly hit, first by global market forces, then by the ability of the rich to park money at low taxes in hideaways around the world."

We have argued for many, many years, that tax havens are a major faultline in the globalisation project, and Sachs clearly shares our viewpoint. Not only has wealth cascaded upwards into the hands of a tiny, tiny minority - killing 'trickle down' theory stone dead - but tax competition has forced governments to concede to the power of big business:

The simple fact is that globalisation has not only hit the unskilled hard but has also proved a bonanza for the global super-rich. They have been able to invest in new and highly profitable projects in emerging economies. Meanwhile, as Warren Buffett argued this week, they have been able to convince their home governments to cut tax rates on profits and high incomes in the name of global tax competition.

Sachs makes a strong case for Europe and America to radically overhaul their fiscal policies, including tax hikes for rich people and on untaxed corporate profits shielded by loopholes and offshore structures in tax havens.

Africa Tax Spotlight - Taxation and Gender

You can download the edition here, and we list the full contents below:

* Editorial - Taxation and Gender: Why does it matter?* Tax us if you can: Why Africa should stand up for tax justice* Interview with Imraan Valodia - What does tax justice have to do with gender equity?
* Ernest Okyere - Tell Me Why I Should Pay Tax and I Will Pay More!!* Bernadette Wanjala - Gender and Taxation in Kenya: The Case of Personal Income and Value Added Taxes* Chris Jordan - Who Pays More, Marta or SABMiller?* Isaac Nyame - Improving the "Lots" of Women Through Taxation to Improve Compliance* TJN Across the Globe
* News and Events
* Profile of Attiya Waris

Thursday, August 18, 2011

France stands up to Swiss dodging

Who are the surrender monkey now? While the German and United Kingdom governments seem to be caving in to Swiss attempts to retain banking secrecy (see here), the French government is resisting similar approaches: "ce n'est pas envisageable" according to this report in Le Monde, which has spoken to the ministers for the economy and the budget.

So what's going on? The Swiss have offered to impose a withholding tax on the interest earnings of British and German residents and to pay the revenues direct to London and Berlin respectively. In return, Swiss bank's clients will retain their anonymity (and continue to dodge inheritance and similar taxes), and Swiss bankers will be allowed immunity from investigation and prosecution for assisting with tax evasion. No matter which way you look at this arrangement, it stinks, and the French government (remember the Presidential elections are on the horizon) probably senses the level of public outrage at such dodgy dealing.

So instead of conceding to the Swiss, the government in Bercy has hit out at making concessions to Berne: the deals being done with Berlin and London "pose problems of principle" which will undermine attempts to tackle tax evasion and "contradict the political efforts of recent years."

They do indeed, but why are the Brits and the Germans so unprincipled, especially during this period of extreme fiscal crisis in Europe as well as elsewhere? After all, the US hasn't caved in to the Swiss, and the French are holding the line. Whilst its tempting to suggest that ending banking secrecy touches too closely on the personal interests of too many political cronies in Berlin and London, our friends in France are far more diplomatic: "We understand the positions of Germany and Great Britain, which not long ago were close to our positions," government ministers are quoted in Le Monde, "but its only human to want to be able to touch the money now rather than later."

Which is a nice way of saying that while others abandon principle for short term expedience, the French government stands up for public interest. Vive la France!

Morality demands rethink of UK-Swiss tax deal, warns Christian Aid

August 18 2011 - Ministers should urgently rethink plans for a deal with Switzerland which would see UK tax evaders let off lightly while harming poor countries, says Christian Aid.

‘We fear that the agreement will be soft on the Britons who have illegally hidden billions in the Alpine tax haven but hard on developing countries, which also suffer from Swiss banking secrecy,’ said Christian Aid Director Loretta Minghella.

‘In a week when there has been a lot of talk in the UK - following the riots - of a moral deficit in society, it is extraordin­ary that the UK Government appears poised to let tax evaders off with nothing more than a regular tax bill.

‘People who have hidden money in secret Swiss bank accounts in order to evade their legal responsibi­lities to the UK will be able to escape unpunished and they won’t even have to reveal their identities to the UK taxman.’

The proposed agreement will lead to Britons with secret Swiss bank accounts starting to pay tax on them, which the Swiss will pass on to the UK – but crucially, without revealing those people’s identities.

Christian Aid believes the deal will seriously damage global efforts to curb tax dodging – a menace which it estimates costs poor countries $160 billion a year, far more than they receive in aid.

Germany is also reported to have initialed a similar deal with Switzerland.

Poor countries lack the political and economic clout to do such deals with Switzerland - but they too lose billions as a result of money being illegally hidden in tax havens.

And just like the UK, they need that money to fund vital public services such as schools, hospitals and justice systems.

Wednesday, August 17, 2011

Foreign aid isn't enough: take action today

We've known this for a long time. For every aid dollar that flows south, ten dollars flows northwards through illicit channels. The odds are stacked against sustainable development.

G20 leaders meet this autumn to discuss the world economy. The prospects don't look encouraging, but this is exactly the moment when they should take action against the underlying problems, which means taking action against tax havens.

Our job is to encourage them to take the necessary steps. Watch this video, circulate the link to your friends and colleagues, and encourage them to take action here.

Tuesday, August 16, 2011

Links Aug 16

Tanzania in talks with miners to raise royalties on gold ReutersAug 15 - Tanzania is Africa's fourth-largest gold producer and has attracted significant investment in the mining sector over the past decade, but there is political pressure on the government to stake claim to a bigger share of revenue from mineral exports. There are negotiations underway to raise royalty payments. Tanzania also said in June it was considering a "super profit" tax on earnings from minerals as one of the ways to fund its five-year development plan - the move follows similar steps in other producer countries.
Gambia: President Yahya Jammeh's D100,000,000 (US$ 3.5 million) home in Maryland revealed Senegambia NewsAug 15 - The report describes how following a year long investigation into an alleged purchase of a multi-million dollar mansion in the United States, Gambians outraged at corruption have today released documents and photographs of President Yahya Jammeh's $3.5M property in the state of Maryland. According to the report, The property was purchased under the name 'Trustees of My J Family Trust.'

India: Anna Hazare - anti-corruption activist's arrest sparks protests across India GuardianAug 16 - "Tens of thousands of people took to the streets across India on Tuesday to protest against the arrest of country's most prominent anti-corruption campaigner and more than 1,000 of his followers ... A crackdown earlier this year successfully broke up demonstrations by tens of thousands of followers of a fasting yoga guru protesting graft."

Greece: Increasing number of citizens report tax evaders ekathimeriniAug 16 - "More and more Greeks are eager to be involved in combating tax evasion and financial crimes, as the number of complaints to the authorities more than quadrupled last year from the year before."

Italian unions threaten strike over new austerity Associated PressAug 16 - "The leader of Italy's largest union is threatening a general strike against an austerity package that Premier Silvio Berlusconi's government hastily pushed through to balance the budget by 2013 and avoid financial collapse." Some critics, 'including nine members of Berlusconi's own coalition, say it unfairly targets the middle class and fails to tackle Italy's massive tax evasion problem."

This is not the case of one rotten apple, or even one rotten company. This is big corporate culture Tax Research UKAug 16 - Richard Murphy comments on charades and shams in the world of big corporate and tax havenry. "If the directors of those companies can believe in this charade there are two things to say about them. The first is that they are willing to turn a blind eye to any abuse if it will increase their profits. The second is that they live in a world so far removed from reality that any defence is believed by them to be plausible."
Goldman, Citigroup Employees Big Givers To Deficit Super Committee Forbes Aug 16 - "If money does buy influence, the financial services industry should be in pretty good shape when the 12 members of a new Congressional “Super Committee” start meeting to decide how to trim at least $1.2 trillion from the federal deficit over the next decade. A new analysis by MapLight, a not-for-profit which tracks political money, shows that the Political Action Committees and employees of six public companies— five of them entirely or partly in financial services—rank among the 10 largest organizational givers to the 12 politicians from 2001 through 2010 ...The top organizational giver, according to MapLight, was the fervently anti-tax Club for Growth." See Warren Buffett's call to this "Super Committee" reported in our blog yesterday.

Monday, August 15, 2011

Thomas Paine on "the vulgar and ignorant mob"

We have a soft spot for Thomas Paine, whose statement that "we have it in our power to begin the world over again" is a message of hope in troubled times. Paine is quotable in most contexts, and his comment about riots and the "the vulgar and ignorant mob" is as prescient today as it was two hundred years ago:

"They rise as an unaviodable consequence, out of the ill construction of all old governments in Europe, England included with the rest. It is by distortedly exalting some men, that others are distortedly debased, until the whole is out of nature."

At a time when the neo-liberal economic order is collapsing around us, when politicians are clueless about how to tackle entrenched powers of bankers and big businesses, and corruption holds at most levels, it should scarcely surprise anyone that large swathes of our populations - old and young - are disaffected, angry and lacking in respect.

Paine, you will recall, lived through one of the most turbulent periods of European history.
Hat tip: Michael Law (from a letter in The Guardian)

Links Aug 15

New Zealand Company Registry Whack-a Mole naked capitalismAug - "What connects: President Barack Obama and Senator Carl Levin and Representative Rahm Emanuel, an aspiring actress in the Seychelles, a fake English lord, an intercepted illegal arms shipment, Wachovia’s $380- billion Mexican drug cartel moneylaundering scandal (yes, billion), 'Russia’s largest tax fraud, an alleged $US230 million heist that led to the untimely deaths of four people and threatens to damage the Russian government', according to the Sydney Morning Herald,…and 369 Queen Street, Auckland, NZ ?"

And see:

Message to New Zealand Prime Minister John Key by way of a Tweet from Nick Shaxson, author of Treasure Islands:

@nakedcapitalism + me: what the hell is going on in New Zealand? http://t.co/AXFfUPm@johnkeypm this isn't a frivolous tweet - pls answer
Swiss-German deal is blow to tax evasion battle Financial TimesAug 15 - David McNair of Christian Aid writes: "The cosy Swiss-German deal undermines years of work towards a system of automatic, multilateral sharing of financial information between governments. This is the gold standard, as far as countering the devastating effects of global tax dodging are concerned – and it is the only hope for scores of governments that lack the political and economic negotiating power of Germany. " See our most recent blogs on this issue here and here.

See also:Germany has set back the fight against tax evasion GuardianAug 12 - David McNair writes: "Those who squirrel away undeclared wealth in Switzerland will be pleased by this deal. What's worse, the UK may follow suit ... Yet again, it is vested interests who are winning out over the real economy and the everyday citizens who are being deprived of essential services, whether in Basel, Berlin or Bamako."

And see Richard Murphy's commentary:Germany has set back the fight against tax evasion - and we'll be outsourcing our tax system to Switzerland too, soon Tax Research UKAug 15 - "This is George Osborne’s [UK Chancellor of the Exchequer] brave new world of tax – helping the tax evaders’ evade. Brilliant, isn’t it? That’s feral leadership for you."
Austerity and Runaway Equality Lead to Violence and Instability Washington's BlogAug 13 - "Moody's [credit rating agency] warned that future tax rises and spending cuts could trigger social unrest in a range of countries from the developing to the developed world ... And the sense of outrage at the injustice of the rich getting richer while the poor get poorer is also a growing global trend."
Wyoming bills would crack down on shell companies ReutersAug 9 - "Wyoming state legislators will consider three new bills next week aimed at reining in "shell" companies formed under the state's liberal incorporation laws ...The move follows a Reuters investigation in June that showed how Wyoming, Nevada and Delaware have become popular business-secrecy destinations at a time when Washington is demanding other countries improve financial and corporate transparency. We linked to this story here, and see the TJN-USA website on the Bipartisan Bill Introduced to Shed Light on Corporate Secrecy in the U.S.

Four New Policy Briefs on How Taxes Work: A Crash Course on Tax Fairness Basics Citizens for Tax JusticeAug 12 - The Institute on Taxation and Economic Policy (ITEP) offers a series of Policy Briefs designed to provide a quick introduction to basic tax policy ideas that are important to understanding current debates at the state and federal level. This week, ITEP released four Briefs that provide an overview of basic tax policy ideas that help explain how all state and local taxes work.

Warren Buffett on legislators and spotted owls

We'll highlight some of his commentary here, but encourage you to read his entire piece, word by word;

He opens:

Our leaders have asked for “shared sacrifice.” But when they did the asking, they spared me. I checked with my mega-rich friends to learn what pain they were expecting. They, too, were left untouched.

While the poor and middle class fight for us in Afghanistan, and while most Americans struggle to make ends meet, we mega-rich continue to get our extraordinary tax breaks.

He explains:

Some of us are investment managers who earn billions from our daily labors but are allowed to classify our income as “carried interest,” thereby getting a bargain 15 percent tax rate. Others own stock index futures for 10 minutes and have 60 percent of their gain taxed at 15 percent, as if they’d been long-term investors.

These and other blessings are showered upon us by legislators in Washington who feel compelled to protect us, much as if we were spotted owls or some other endangered species. It’s nice to have friends in high places.

Buffett tells us about his federal tax bill last year:

The income tax I paid, as well as payroll taxes paid by me and on my behalf ... was only 17.4 percent of my taxable income — and that’s actually a lower percentage than was paid by any of the other 20 people in our office. Their tax burdens ranged from 33 percent to 41 percent and averaged 36 percent.

If you make money with money, as some of my super-rich friends do, your percentage may be a bit lower than mine. But if you earn money from a job, your percentage will surely exceed mine — most likely by a lot.

In observing the proportion of tax paid by the super-rich, he goes on to debunk some common scare spin on investing and on jobs:

Back in the 1980s and 1990s, tax rates for the rich were far higher, and my percentage rate was in the middle of the pack. According to a theory I sometimes hear, I should have thrown a fit and refused to invest because of the elevated tax rates on capital gains and dividends.

I didn’t refuse, nor did others. I have worked with investors for 60 years and I have yet to see anyone — not even when capital gains rates were 39.9 percent in 1976-77 — shy away from a sensible investment because of the tax rate on the potential gain. People invest to make money, and potential taxes have never scared them off.

And to those who argue that higher rates hurt job creation, I would note that a net of nearly 40 million jobs were added between 1980 and 2000. You know what’s happened since then: lower tax rates and far lower job creation.

A special committee is being convened in the U.S. Govermment , under the debt ceiling deal, to devise a plan that reduces the 10-year deficit by at least $1.5 trillion. Buffett proposes that the committee raise the tax rate paid by those with taxable income of more than $1million a year, including dividends and capital gains which are currently taxed at a lower rate than payroll taxes. For those bringing in more than $10million, he suggests an additional increase in rate.

We and our partners have argued on issues not raised in Buffett's piece - issues that we have blogged extensively - that a large part of the deficit reduction equation is the closing of massive loopholes that allow for multinational corporate tax dodging offshore, as well as tax havenry by wealthy tax evaders.

About Me

The Tax Justice Network (TJN) is an international, non-aligned network of researchers and activists with a shared concern about the harmful impacts of tax avoidance, tax competition and tax havens.
www.taxjustice.net